MARKET WATCHEnergy prices rebound as Iran dispute simmers

Sam FletcherSenior Writer

HOUSTON, May 1 -- Energy prices rebounded Apr. 28, bouncing above $72/bbl during intraday trading in the New York market, on reports that Iran ended a 30-day grace period still defying the United Nations' Security Council over its nuclear program.

Analysts at Raymond James & Associates Inc. said energy prices were climbing again in early trading May 1 on reports that a fire had shut down ERG SPA's 160,000 b/d refinery in Sicily.

Western members of the Security Council are calling for UN sanctions against Iran in the stalemate over its nuclear program. "But Russia and China, both of whom have veto power, are currently not in favor of sanctions. The diplomatic game now begins in earnest, with very little visibility as to the timetable. Bottom line: Iran has a stated intention of proceeding with its nuclear program and seems to be getting more antagonistic whenever it is threatened with international action. The US and Israel are equally determined to prevent Iran from obtaining nuclear weapons. There is still a window for diplomacy to work, but it will not last forever," said analysts in Raymond James's Houston office.

Robust marketIn a separate report, they said, "We continue to believe that robust oil and gas prices will be sustainable for the foreseeable future." Raymond James is predicting average prices of $65.50/bbl for crude and $7.82/Mcf for natural gas during 2006. "We have an even more bullish long-term price deck: $70/bbl oil and $10/Mcf gas, with a 2% price inflator after 2007," analysts said.

In an Apr. 29 report, analysts at Petromatrix GMBH in Zug, Switzerland, said, "The [crude] market is going through a corrective cycle, and we need to recognize that there is still potential room for a further $5/bbl correction to about $65/bbl before the next structural shift up. However, we view this further $5/bbl correction potential as a maximum, and we do believe that fresh buying will develop before that. On the other hand, the market will need to have reports of new supply disruptions to move much above $75/bbl, so we expect a $67-75/bbl range until then."

Petromatrix analysts warned, "The crude oil fundamentals will get tighter as US refineries start to come back from maintenance. With the current high crude oil stocks in the US, May will still stay as a transition month but after that competition for world crude will be fiercer. Up until now a warm winter and heavy outages at US refineries have kept the crude physical market from 'overheating' and enabled wide crude contango, but this will change as the US crude stocks start to draw in the coming months."

Energy pricesThe June contract for benchmark US light, sweet crudes hit $72.65/bbl in intraday trading Apr. 28 on the New York Mercantile Exchange before closing at $71.88/bbl, up by 91¢ for the day. The July contract gained $1.03 to $73.50/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up by 91¢ to $71.89/bbl. Heating oil for May delivery increased by 2.72¢ to $2.01/gal Apr. 28 on NYMEX. Gasoline for the same month increased by 2.02¢ to $2.09/gal.

The June natural gas contract dropped 25¢ to $6.56/MMbtu, pushed down by bearish reports last week of increased injections in US underground storage. However, the National Center for Environmental Prediction is expecting the upcoming early summer will be hotter than normal in much of the southern and western US.

In London, the May IPE contract for North Sea Brent crude gained $1.11 to $7202/bbl Apr. 28. Gas oil for May inched up by $1 to $627.75/tonne.

The Organization of Petroleum Exporting Countries' office in Vienna was closed May 1, so there was no update of OPEC's basket price.